GameStop is a Fortune 500 company headquartered in Grapevine, Texas. They offer games and entertainment products across ten countries. Gamestop had a revenue of $5.2 billion last year, and their earnings were $(2.52) loss per share. The company's market capitalization was approximately $1.2 billion (the value of the company/the total value of all the shares together). There has been a very high short interest in the stock (number of shares short the stock at any given time) because people thought that the company's revenue would continue to decrease and the value of their shares would go down, due to a decline in the business.
When you own a stock (long a stock), you are investing for that value of a stock to go higher so that you can profit when you sell it. In this situation, the most money you can lose is the amount you invested, whereas the amount of money you can make is theoretically infinite. When you short a stock you are making an investment bet that the value of the stock will go down. You make money if the stock goes down, but lose money if the stock goes up. When you are short a stock, the most money you can gain is 100% of your investment, but you can theoretically lose an infinite amount of money. This creates a lot of risk for investors who short a stock and may force them to cover their position if the stock goes up too much.
On January 11, 2021, GameStop came to an agreement with an activist investor, RC Ventures, to immediately add three new board members, including the former CEO, CFO, and chief marketing officer from Chewy Inc, a successful e-commerce company. This announcement generally got investors more excited about the prospect of the company. In addition, it got retail investors on Reddit, specifically the “wallstreetbets” account, excited about the opportunity to promote the stock and “squeeze the shorts” which would drive the price of the stock up. The shorts would be forced to cover their positions, driving the price of the stock up, making this a virtuous cycle. This speculation attracted many small individual investors who thought they could quickly make money with the price of the stock going up so fast. Apps such as Robinhood make it easy for retail investors to buy stock. Several major funds that had shorted the stock suffered significant losses, most notably Melvin Capital, a hedge fund, that ended up being down 50% in the month of January as a result. The fund, in turn, had to raise additional capital to cover their losses and stay solvent. GameStop’s stock peaked at $482 on January 27 with just under 200 million shares traded in one day. The value of GameStop skyrocketed from $1.2 billion on January 1 to $33.6 billion at its peak on January 27, and was disconnected from the underlying value of the business as speculators drove the value of the stock up. Once the shorts had covered most of their positions, the stocks started going down and many of the individual investors had to sell so they wouldn’t lose money, creating a negative virtuous cycle. Some retail investors made money, but many lost money as well. Currently, GameStop's stock price is $52.40, significantly lower than its peak at $482, but above the $20 a share it was trading at before the frenzy.
The Economy throughout the Pandemic:
In March 2020, our country went into lockdown. Social distancing became normal and the economy immediately suffered. Lockdown measures combined with social distancing slowed the economy’s production of goods and services. Many small businesses struggled, and more than 10.7 million people are still unemployed. Although unemployment has impaired many Americans, it has severely hurt women, non-white workers, lower-wage earners, and people with less education. Prior to the pandemic, in 2019, women held more nonfarm payroll jobs than men for the first time in history. This was reversed by May of 2020. Retail sales have also suffered, declining 8.7 percent from February to March 2020. Other industries: grocery stores, pharmacies, and non-store retailers, have seen an increase in demand since the start of the pandemic in March. Regarding the stock market, as COVID-19 spread it crushed the stock market because people saw that the economic output would be very limited. The stock market started to recover as investors invested in stocks, like Peloton, that benefited from the pandemic. They also began to invest in other stocks, like Uber and Lyft, as the end of the pandemic was in sight and their hope grew that the world would return to normal in 2021.
After the release of the vaccine:
With the production of Pfizer's vaccine, it is likely that the economy will begin to return to a state like the one it was in before COVID-19. This change will likely begin to become more rapid in mid- 2021, when more people will be vaccinated and able to return to their work.To look at it in 3 different parts, we can see the direct, indirect, and induced economic effects of the COVID-19 vaccine. The production of the vaccine alone will produce a $32.3 billion economic impact and give rise to 88,179 jobs. This is a direct result of the vaccine. The Dow Jones Industrial Average and S&P, which are market indexes that keep track of and measure the stock performance of some of the world's biggest companies, have both gone up 5.4% and 3.8%, respectively, during just the early stages of the vaccine's creation. Looking at small businesses first, the mass production and distribution of the vaccine will help increase pedestrian traffic and allow for more people to be within closed spaces. This will help local small shops and restaurants, which will now be able to up their maximum capacity. For airline, car, bus, train, cruise, and any other transportation companies, there will also be a revival of business. Keeping this in mind, it is inevitable that oil prices will rise with the new demand. With transportation companies back in business, hotels will start bringing in more customers as well. Finally, entertainment companies can resume their productions, theatres for movies and plays will reopen, and collegiate and professional sports games can allow more spectators. These are all indirect effects of the vaccine. Induced effects include the spending of those who are profiting off of their new income because of the vaccine.